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'Street estimates for Q1 are likely optimistic': Here's what 4 analysts expect when Facebook reports quarterly earnings

'Street estimates for Q1 are likely optimistic': Here's what 4 analysts expect when Facebook reports quarterly earnings

Ben Winck

Facebook's founder and CEO Mark Zuckerberg speaks at the Viva Tech start-up and technology summit in ParisReuters

Wall Street has mixed hopes for Facebook's first-quarter report, with all eyes on how hard its advertising revenue will slide amid the coronavirus pandemic.
The company revealed a surge in usage in a March 24 blog post, and analysts want to know whether the rise in popularity can offset a decline in revenue elsewhere.
Any update for second-quarter performance will also drive post-earnings stock moves, as analysts expect the period to show the majority of the coronavirus' financial damage.
Here's what four Wall Street analysts expect from the social media giant's earnings report.
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Even as Facebook previews a jump in user activity amid widespread lockdowns, Wall Street has mixed hopes for the firm's first-quarter report.

The social media titan is slated to release its first-quarter results Wednesday afternoon, joining tech peers Apple, Amazon, and Microsoft in the busiest week of earnings season. Software-heavy firms like Facebook stand to impress investors as they skirt much of the supply chain disruption wrought by the coronavirus. Yet the company's ad revenue will likely slide through the first half of the year as other firms slash spending and brace for a recession.

Here's what analysts surveyed by Bloomberg expect:

Earnings per share (GAAP): $1.71 expected
Revenue: $17.30 billion expected

Facebook shares are up nearly 9% from its pandemic-induced lows, riding a broad market upswing fueled by reopening plans and government stimulus. The stock bounced nearly 3% on Friday alone after the announcement of its "Rooms" teleconferencing product.

The company said in a March 24 blog post that the pandemic and related quarantines have pushed user engagement through the roof, with total messaging spiking 50% over the past month. Analysts are keen to know where the engagement jump is concentrated, and whether it will prop up revenue while advertising activity sinks.

Here's what four top Wall Street firms expect from the company's first quarter report. Facebook closed at $182.91 per share on Tuesday, down about 9% year-to-date.

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4. RBC Capital Markets: 'Street estimates for Q1 are likely optimistic'

Employees of the Internet company Facebook walk through the courtyard of the company campus in Menlo Park, California. Christoph Dernbach/Picture Alliance/Getty Images

Price target: $238

Rating: Outperform

RBC echoed Goldman's concerns, noting "Street estimates for Q1 are likely optimistic, given the material pullback in ad spend due to COVID-19." Snapchat's first-quarter results announced last week suggest Facebook's hit to ad revenue could be weaker than expected but still reveal a dramatic decline in growth, RBC added.

With advertising revenue growth set to take a major hit, investors should look to user growth and margin levels for hopeful signs, the firm's analysts wrote Friday. The company's March 24 blog served as a promising message that could see user metrics surprise on the upside, RBC said. Facebook may even lower its spending plans "given the challenging ad environment," providing a temporary boost to margin performance.

Still, RBC's analysts view Facebook as a "J-Curve company," anticipating a major gain after the coronavirus threat dissipates. Expect a sharp rebound after the first half of the year, RBC said, as the second quarter will likely display the worst of the firm's coronavirus damage.

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3. Goldman Sachs: 'Significant volatility in the digital advertising market'

Matt Winkelmeyer/Getty Images for Vanity Fair

Price target: $170

Rating: Buy

Goldman Sachs analysts hold a decidedly less optimistic view compared to its aforementioned peers, warning of "material downside" to Wall Street's ad revenue forecast. Investors should anticipate "revenue softness" due to the coronavirus pandemic, and shift focus to the advertising industry for hints at how the tech giant may recover.

Our field checks point to significant volatility in the digital advertising market over the past few weeks on account of the COVID-19 pandemic," Goldman said, adding that "uncertain outlook for ad budgets for the remainder of the year" leave Facebook's 8 million ad partners at heightened risk.

Volatility will also bleed into Facebook's next-quarter forecast and likely leave investors less hopeful. Goldman expects guidance to "remain conservative" following the company's previous projection of a low- to mid-single-digit percentage deceleration in revenue growth.

2. Bank of America: 'Big opportunities ahead'

Facebook Chairman and CEO Mark Zuckerberg testifies at a House Financial Services Committee hearing in Washington, U.S., October 23, 2019. REUTERS/Erin Scott

Price target: $200

Rating: Buy

Wall Street "seems prepared" for a hit to ad spending, Bank of America analysts wrote Monday, and investors can "expect modest upside" to estimates revised in the wake of the coronavirus pandemic.

"Revenues will likely decelerate materially with GDP in 2Q, but recent checks/Snap results have suggested that ad spend has stabilized after a material pause/dropoff in March," the firm wrote. "Recent commentary on continued hiring and investment suggests margin pressure which could be disappointing, but also could indicate relative revenue resiliency and that FB sees big opportunities ahead."

Near-term moves will hinge on the company's second-quarter commentary. Past calls have included such guidance, so the absence of such an update will leave the investors "disappointed," the analysts said.

1. JPMorgan: 'Perform better than GOOGL'

In this Jan. 9, 2019 photo, media and guests tour Facebook's 130,000-square-foot offices, which occupy the top three floors of a 10-story Cambridge, Mass. building. AP Photo/Elise Amendola

Price target: $215

Rating: Overweight

JPMorgan's analysts hold a positive outlook heading into Wednesday's report, deeming the social media giant "one of our top pics across our coverage." The bank anticipates year-over-year revenue drops to arrive in the second and third quarters as advertisers cut buys. Still, the company's dominance will likely yield a better performance than its sector peers, JPMorgan said.

"We expect FB to perform better than GOOGL and next tier platforms TWTR, SNAP, and PINS," the analysts wrote. "FB should benefit from strong stay-at-home engagement and its long tail of 8M+ advertisers."

The first-quarter report should reveal continued investment as the company "clearly has the balance sheet to do so," the bank added. Estimates project a 10% growth in total headcount and 18% jump in operating expenses.